LRN
$25.86
K12
$.27
1.06%
Earnings Details
2nd Quarter December 2018
Tuesday, January 22, 2019 4:30:00 PM
Tweet Share Watch
Summary

K12 Misses

K12 (LRN) reported 2nd Quarter December 2018 earnings of $0.59 per share on revenue of $254.9 million. The consensus earnings estimate was $0.57 per share on revenue of $252.0 million. The Earnings Whisper number was $0.60 per share. Revenue grew 17.3% on a year-over-year basis.

The company said it expects third quarter revenue of $250.0 million to $255.0 million. The current consensus revenue estimate is $251.5 million for the quarter ending March 31, 2019.

K12 Inc is a technology-based education company. It offers proprietary curriculum and educational services created for online delivery to students in kindergarten through 12th grade, or K-12.

Results
Reported Earnings
$0.59
Earnings Whisper
$0.60
Consensus Estimate
$0.57
Reported Revenue
$254.9 Mil
Revenue Estimate
$252.0 Mil
Growth
Earnings Growth
Revenue Growth
Guidance
Power Rating
Grade
Earnings Release

K12 Inc. Reports Second Quarter Fiscal 2019 with Revenues of $254.9 Million

HERNDON, Va.--(BUSINESS WIRE)-- K12 Inc. (NYSE: LRN), a technology-based education company and leading provider of online curriculum and online school programs for students in pre-K through high school, today announced its results for the second fiscal quarter ended December 31, 2018.

Financial Highlights for the Three Months Ended December 31, 2018 (Second Quarter Fiscal Year 2019)

  • Revenues of $254.9 million, compared to revenues of $217.2 million in the second quarter of FY 2018.
  • Operating income of $33.3 million, compared to $13.7 million in the second quarter of FY 2018.
  • Net income attributable to common stockholders of $23.7 million, compared to $13.3 million in the second quarter of FY 2018.
  • Diluted net income attributable to common stockholders per share of $0.59, compared to $0.33 in the second quarter of FY 2018.

To supplement our financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), we are also presenting adjusted operating income (loss) and adjusted EBITDA. Management believes that these additional metrics provide useful information to our investors as an indicator of performance because they exclude stock-based compensation expenses. Non-GAAP Financial Highlights for the three months ended December 31, 2018 (Second Quarter Fiscal Year 2019) are as follows:

  • Adjusted operating income of $37.4 million, compared to $20.9 million in the second quarter of FY 2018.
  • Adjusted EBITDA of $55.1 million, compared to adjusted EBITDA of $39.5 million in the second quarter of FY 2018.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below.

Financial Highlights for the Six Months Ended December 31, 2018 (Year-to-Date Fiscal 2019)

  • Revenues of $506.2 million, compared to $446.0 million for the first six months of FY 2018.
  • Operating income of $19.5 million, compared to an operating loss of $4.0 million for the first six months of FY 2018.
  • Net income attributable to common stockholders of $15.4 million, compared to $5.2 million for the first six months of FY 2018.
  • Diluted net income attributable to common stockholders per share of $0.38, compared to $0.13 for the first six months of FY 2018.

Non-GAAP Financial Highlights for the Six Months Ended December 31, 2018 (Year-to-Date Fiscal 2019) are as follows:

  • Adjusted operating income of $27.7 million, compared to $6.2 million for the first six months of FY 2018.
  • Adjusted EBITDA of $63.9 million, compared to $45.4 million for the first six months of FY 2018.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below.

Liquidity

As of December 31, 2018, the Company had cash, cash equivalents, and restricted cash of $205.3 million, a decrease of $27.8 million compared to $233.1 million reported at June 30, 2018. This decrease is largely the result of normal seasonal trends. On a year-over-year basis, cash, cash equivalents, and restricted cash increased $15.8 million compared to December 31, 2017.

Capital Expenditures

Capital expenditures for the six months ended December 31, 2018 were $27.3 million, an increase of $3.5 million from the prior year’s first six months, and was comprised of:

  • $1.9 million for property and equipment,
  • $15.3 million for capitalized software development, and
  • $10.1 million for capitalized curriculum development.

Revenue and Enrollment Data

Revenue

The Company’s lines of business are: Managed Public School Programs (programs which offer an integrated package of systems, services, products, and professional expertise that K12 manages to support an online or blended public school, including administrative support, information technology, academic support services, online curriculum, learning system platforms, and instructional services), Institutional (Non-managed Public School Programs – programs which provide instruction, curriculum, supplemental courses, marketing, enrollment and other educational services where K12 does not provide primary administrative support services and Institutional Software and Services – educational software and services provided to school districts, public schools and other educational institutions), and Private Pay Schools and Other (private schools for which it charges student tuition and makes direct consumer sales). The following table sets forth the Company’s revenues for the periods indicated:

                   

Three Months Ended
December 31,

Change 2018 / 2017

Six Months Ended
December 31,

Change 2018 / 2017
2018     2017 $     % 2018     2017 $     %
(In thousands, except percentages)
 
Managed Public School Programs $ 222,793 $ 183,392 $ 39,401 21.5 % $ 443,336 $ 371,898 $ 71,438 19.2 %
 
Institutional
Non-managed Public School Programs 13,217 13,991 (774 ) -5.5 % 24,622 31,150 (6,528 ) -21.0 %
Institutional Software & Services   9,891   11,437   (1,546 ) -13.5 %   20,985   24,895   (3,910 ) -15.7 %
Total Institutional 23,108 25,428 (2,320 ) -9.1 % 45,607 56,045 (10,438 ) -18.6 %
Private Pay Schools and Other   8,971   8,391   580   6.9 %   17,243   18,053   (810 ) -4.5 %
Total Revenues $ 254,872 $ 217,211 $ 37,661   17.3 % $ 506,186 $ 445,996 $ 60,190   13.5 %
 

Enrollment Data

The following table sets forth average enrollment data for the period indicated. These figures exclude enrollments from classroom pilot programs and consumer programs.

                   

Three Months Ended
December 31,

    2018 / 2017

Six Months Ended
December 31,

    2018 / 2017
2018     2017 Change     Change % 2018     2017 Change     Change %
(In thousands, except percentages)
 
Managed Public School Programs (1,2) 116.4 108.5 7.9 7.3% 117.0 109.1 7.9 7.2%
Non-managed Public School Programs (1) 23.7 23.9 (0.2) -0.8% 23.7 23.9 (0.2) -0.8%
 
(1)     If a school changes from a Managed Public School Program to a Non-managed Public School Program, the corresponding enrollment classification would change in the period in which the contract arrangement changed.
(2) Managed Public School Programs include enrollments for which K12 receives no public funding or revenue.
 

Revenue per Enrollment Data

The following table sets forth revenue per average enrollment data for students in Public School Programs for the period indicated.

                   
Three Months Ended Change Six Months Ended Change
December 31,     2018 / 2017 December 31,     2018 / 2017
2018     2017 $     % 2018     2017 $     %
Managed Public School Programs $ 1,914 $ 1,690 224 13.3 % $ 3,789 $ 3,409 380 11.1 %
Non-managed Public School Programs 558 585 (27 ) -4.6 % 1,039 1,303 (264 ) -20.3 %
 

Outlook

The Company is forecasting the following for the third quarter, fiscal 2019:

  • Revenue in the range of $250.0 million to $255.0 million.
  • Capital expenditures of $9.0 million to $11.0 million. Note: Capital expenditures include the purchase of property and equipment, and capitalized software and curriculum development costs as presented in our Statements of Cash Flows.
  • Adjusted operating income in the range of $24.0 million to $26.0 million. (3)
   
(3) In addition to providing guidance on revenue and capital expenditures, adjusted operating income is provided as a supplemental non-GAAP financial measure as management believes that it provides useful information to our investors.
 

Special Note on Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We have tried, whenever possible, to identify these forward-looking statements using words such as “anticipates,” “believes,” “estimates,” “continues,” “likely,” “may,” “opportunity,” “potential,” “projects,” “will,” “expects,” “plans,” “intends” and similar expressions to identify forward looking statements, whether in the negative or the affirmative. These statements reflect our current beliefs and are based upon information currently available to us. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, such statements. These risks, uncertainties, factors and contingencies include, but are not limited to: reduction of per pupil funding amounts at the schools we serve; inability to achieve a sufficient level of new enrollments to sustain our business model; failure to enter into new managed school contracts or renew existing contracts, in part or in their entirety; failure of the schools we serve or us to comply with federal, state and local regulations, resulting in a loss of funding, an obligation to repay funds previously received or contractual remedies; governmental investigations that could result in fines, penalties, settlements, or injunctive relief; declines or variations in academic performance outcomes of the students and schools we serve as curriculum standards, testing programs and state accountability metrics evolve; harm to our reputation resulting from poor performance or misconduct by operators or us in any school in our industry and/or in any school in which we operate; legal and regulatory challenges from opponents of virtual public education or for-profit education companies; discrepancies in interpretation of legislation by regulatory agencies that may lead to payment or funding disputes; termination of our contracts with schools due to a loss of authorizing charter; entry of new competitors with superior technologies and lower prices; unsuccessful integration of mergers, acquisitions and joint ventures; failure to further develop, maintain and enhance our technology, products, services and brands; inadequate recruiting, training and retention of effective teachers and employees; infringement of our intellectual property; and other risks and uncertainties associated with our business described in the Company’s filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of December 31, 2018, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.

Conference Call

The Company will discuss its second quarter fiscal year 2019 financial results during a conference call scheduled for Tuesday, January 22, 2019 at 5:00 p.m. eastern time (ET).

The conference call will be webcast and available at http://public.viavid.com/index.php?id=132537. Please access the web site at least 15 minutes prior to the start of the call.

To participate in the live call, investors and analysts should dial (877) 407-4019 (domestic) or (201) 689-8337 (international) at 4:45 p.m. (ET). No passcode is required.

A replay of the call will be available starting on January 22, 2019 at 8:00 p.m. ET through February 22, 2019 at 8:00 p.m. ET, at (877) 660-6853 (domestic) or (201) 612-7415 (international) using conference ID 13685691. A webcast replay of the call will be available at http://public.viavid.com/index.php?id=132537 for 30 days.

Financial Statements

The financial statements set forth below are not the complete set of K12 Inc.’s financial statements for the three and six months ended December 31, 2018, and are presented below without footnotes. Readers are encouraged to obtain and carefully review K12 Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2018, including all financial statements contained therein and the footnotes thereto, filed with the SEC, which may be retrieved from the SEC’s website at www.sec.gov or from K12 Inc.’s website at www.k12.com.

     

K12 INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 
December 31,     June 30,
2018 2018
(audited)
(In thousands except share and per share data)
ASSETS
Current assets
Cash and cash equivalents $ 203,275 $ 231,113
Accounts receivable, net of allowance of $12,402 and $12,384 at December 31, 2018 and June 30, 2018, respectively 239,702 176,319
Inventories, net 17,068 31,134
Prepaid expenses 19,120 10,278
Other current assets   14,447     10,388  
Total current assets 493,612 459,232
Property and equipment, net 32,481 28,868
Capitalized software, net 52,997 55,488
Capitalized curriculum development costs, net 52,085 53,558
Intangible assets, net 16,466 17,951
Goodwill 90,197 90,197
Deposits and other assets   45,865     36,669  
Total assets $ 783,703   $ 741,963  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations $ 26,191 $ 13,353
Accounts payable 20,460 29,362
Accrued liabilities 14,619 14,345
Accrued compensation and benefits 28,120 36,050
Deferred revenue   51,476     23,114  
Total current liabilities 140,866 116,224
Capital lease obligations, net of current portion 8,560 12,665
Deferred rent, net of current portion 2,766 3,270
Deferred tax liability 18,114 12,577
Other long-term liabilities   9,441     10,038  
Total liabilities   179,747     154,774  
Commitments and contingencies
Stockholders’ equity
Common stock, par value $0.0001; 100,000,000 shares authorized; 45,550,316 and 44,902,567 shares issued; and 40,215,573 and 39,567,824 shares outstanding at December 31, 2018 and June 30, 2018, respectively 4 4
Additional paid-in capital 705,825 703,351
Accumulated other comprehensive loss (59 ) (252 )
Retained earnings (accumulated deficit) 668 (13,432 )
Treasury stock of 5,334,743 shares at cost at December 31, 2018 and June 30, 2018   (102,482 )   (102,482 )
Total stockholders’ equity   603,956     587,189  
Total liabilities and stockholders' equity $ 783,703   $ 741,963  
 

 

K12 INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
    Three Months Ended December 31,     Six Months Ended December 31,
2018     2017 2018     2017
(In thousands except share and per share data)
Revenues $ 254,872 $ 217,211 $ 506,186 $ 445,996
Cost and expenses
Instructional costs and services 160,329 139,163 319,314 286,530
Selling, administrative, and other operating expenses 60,183 61,958 162,761 158,240
Product development expenses   1,070     2,376     4,573     5,274  
Total costs and expenses   221,582     203,497     486,648     450,044  
Income (loss) from operations 33,290 13,714 19,538 (4,048 )
Interest income (expense) and other, net   (504 )   39     (92 )   274  
Income (loss) before income taxes and noncontrolling interest 32,786 13,753 19,446 (3,774 )
Income tax benefit (expense)   (9,074 )   (564 )   (4,016 )   8,804  
Net income 23,712 13,189 15,430 5,030
Add net loss attributable to noncontrolling interest       70         173  
Net income attributable to common stockholders $ 23,712   $ 13,259   $ 15,430   $ 5,203  
Net income attributable to common stockholders per share:
Basic $ 0.61   $ 0.34   $ 0.40   $ 0.13  
Diluted $ 0.59   $ 0.33   $ 0.38   $ 0.13  
Weighted average shares used in computing per share amounts:
Basic   38,816,669     39,347,244     38,625,359     39,227,708  
Diluted   40,325,260     40,685,667     40,178,555     40,773,017  
 

 

K12 INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
      Six Months Ended December 31,
2018     2017
(In thousands)
Cash flows from operating activities
Net income $ 15,430 $ 5,030
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization expense 36,221 39,186
Stock-based compensation expense 8,164 10,296
Deferred income taxes 6,334 (51)
Provision for doubtful accounts 740 468
Other 3,971 3,485
Changes in assets and liabilities:
Accounts receivable (64,116) (52,202)
Inventories, prepaid expenses, deposits and other assets 3,935 (7,759)
Accounts payable (3,428) (9,106)
Accrued liabilities 769 (9,259)
Accrued compensation and benefits (7,930) (9,711)
Deferred revenue, rent and other liabilities   24,795   28,705
Net cash provided by (used in) operating activities   24,885   (918)
Cash flows from investing activities
Purchase of property and equipment (1,914) (5,917)
Capitalized software development costs (15,263) (13,378)
Capitalized curriculum development costs (10,099) (4,474)
Acquisitions and investments   (11,652)   (2,170)
Net cash used in investing activities   (38,928)   (25,939)
Cash flows from financing activities
Repayments on capital lease obligations (6,938) (6,987)
Payments of contingent consideration (987) (1,819)
Proceeds from exercise of stock options 1,035 58
Repurchase of restricted stock for income tax withholding   (6,905)   (5,757)
Net cash used in financing activities   (13,795)   (14,505)
Net change in cash, cash equivalents and restricted cash (27,838) (41,362)
Cash, cash equivalents and restricted cash, beginning of period   233,113   230,864
Cash, cash equivalents and restricted cash, end of period $ 205,275 $ 189,502
 
Reconciliation of cash, cash equivalents and restricted cash to balance sheet as of December 31st:
Cash and cash equivalents $ 203,275 $ 189,502
Deposits and other assets (restricted cash)   2,000  
Total cash, cash equivalents and restricted cash $ 205,275 $ 189,502
 

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with GAAP, we have presented adjusted operating income (loss) and adjusted EBITDA. These measures are not measurements recognized under GAAP.

  • Adjusted operating income (loss) is defined as income (loss) from operations as adjusted for stock-based compensation.
  • Adjusted EBITDA is defined as income (loss) from operations as adjusted for stock-based compensation and depreciation and amortization.
  • Adjusted EBITDA and adjusted operating income (loss) exclude stock-based compensation, which consists of expenses for stock options, restricted stock, restricted stock units, and performance stock units.

This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. Management believes that the presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations because it is an indicator of performance with the removal of stock-based compensation which assists both investors and management in analyzing and benchmarking the performance and value of our business.

We believe adjusted EBITDA is useful to an investor in evaluating our operating performance because it is both widely used to measure a company’s operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of our capital structure and the method by which assets were acquired.

Our management uses adjusted EBITDA and adjusted operating income (loss):

  • as additional measures of operating performance because they assist us in comparing our performance on a consistent basis;
  • in presentations to the members of our Board of Directors to enable our Board to review the same measures used by management to compare our current operating results with corresponding prior periods; and
  • as consistent with lending covenants on our line of credit.

Other companies may define these non-GAAP financial measures differently and, as a result, our use of these non-GAAP financial measures may not be directly comparable to adjusted EBITDA and adjusted operating income (loss) used by other companies. Although we use these non-GAAP financial measures to assess the performance of our business, the use of non-GAAP financial measures is limited as they include and/or do not include certain items not included and/or included in the most directly comparable GAAP financial measure.

Adjusted EBITDA and adjusted operating income (loss) should be considered in addition to, and not as a substitute for, income or loss from operations, net income or loss, and earnings or loss per share prepared in accordance with GAAP as a measure of performance. Adjusted EBITDA is not intended to be a measure of liquidity. You are cautioned not to place undue reliance on these non-GAAP financial measures.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below.

           
Three Months Ended December 31, Six Months Ended December 31,
2018     2017 2018     2017
(In thousands)
Income (loss) from operations 33,290 13,714 19,538 (4,048)
Stock-based compensation expense   4,140   7,217   8,164   10,296
Adjusted operating income   37,430   20,931   27,702   6,248
Depreciation and amortization   17,710   18,550   36,221   39,186
Adjusted EBITDA $ 55,140 $ 39,481 $ 63,923 $ 45,434
 

About K12 Inc.

K12 Inc. (NYSE: LRN) is driving innovation and advancing the quality of education by delivering state-of-the-art, digital learning platforms and technology to students and school districts across the globe. K12’s curriculum serves over 2,000 schools and school districts and has delivered millions of courses over the past decade. K12 provides online and blended education solutions to charter schools, public school districts, private schools, and directly to families. The K12 program is offered through more than 70 partner public schools, and through school districts and public and private schools serving students in all 50 states and more than 100 countries. More information can be found at K12.com. To download the enrollment app visit K12.com/app.

Source: K12 Inc.

K12 Inc.
Investor and Press Contact:
Mike Kraft, 571-353-7778
Senior Vice President, Corporate Communications
mkraft@k12.com

Source: K12 Inc.